Your other stated alternative is Property Management, but while it may satisfy the 2nd purpose I highly doubt there's enough money to satisfy the 1st. 

I don't think you can do that if you don't actually own the property first.No, the REO's usually will not let any alternations to their contract.

So I had an idea that could potentially replace my original plan of living in a multifamily home and I wanted to know if it would be viable or not. I was thinking that instead of living in the property that I invested...

Both alternatives allow for the property to cash flow respective to their rent roll.Any guidance would be greatly appreciated, thank you!

.), are there alternative options? 

As an alternative you could do something like this:https://www.biggerpockets.com/forums/600/topics/58...If you have further questions, ask away or you can PM me as well.

I alternate between "I should start small, and besides I need to use my 10 residential loans" and "go big!

You can do what’s called a non-agency product where they use alternative income sources such as 12 months average bank deposits, or no ratio program or DSC (debt service coverage) or you can do a conventional loan as an investment property and use the net rental income to qualify with.

However, it can be very helpful in evaluating properties once you have identified them as targets.For example... very helpful to know when a property is owned free and clear, or, alternatively, when a property has liens that exceed its value.

@Nicole WalleyWell there might be some selection bias in the sample choice when asking on BP, kinda like asking a Ford dealer who builds the best trucks.